'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/255/original/2020-06-11_08-36-54.png?1591832240" class="editor-image img-responsive" data-smartkarma-image-id="139255"></figure><div class="content-caption">Source: Japan Analytics</div>STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Swimming Naked?</a> Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a> which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>- have been excluded from this analysis.

Source: Japan AnalyticsSTRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's Swimming Naked? Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with Nissan Motor (7201 JP) which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)- have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Equity Bottom-Up

In '<a href="https://www.smartkarma.com/insights/lockdown-to-accelerate-wifi-6-a-threat-to-anticipated-5g-deployment" target="_blank" data-smartkarma-citation="insights:38696" rel="noopener">Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment?'</a>, we looked at Wi-Fi 6, comparing it with 5G. We noted that there is no real difference between the Wi-Fi 6 and 5G technologies and that Wi-Fi 6 is relatively safe.  While most of the hype has been about 5G, we stated that Wi-Fi 6 appears to be much closer to being realised, and that device manufacturers have been taking Wi-Fi 6 more seriously, and thus it could be a threat to 5G. This insight takes a look at how 5G could be a disappointment, and how this might affect <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a>, whose communication segment's recovery was built upon 5G. In addition, Murata's MLCC technology has been continuously updated to suit 5G and smartphone needs.<div class="content-highlight">
We spoke to the company about the implication of 5G vs. Wi-Fi 6 penetration. According to Murata, their devices would be used in a lot of areas regardless of whether it is Wi-Fi 6 or 5G. However, they expect 5G to be a more significant driver than Wi-Fi 6.
Given Apple's launch of 5G probably by the end of this year and increasing 5G launch in China (<a href="https://www.smartkarma.com/insights/luxshare-s-risky-chance-to-be-apple-s-second-foxconn" target="_blank" data-smartkarma-citation="insights:39542" rel="noopener">Luxshare’s Risky Chance to Be Apple’s Second Foxconn</a>), Murata may be able to see some growth from 5G over FY03/22. That said, sustaining long-term growth might depend on Murata's ability to exploit its MLCC technology for Wi-Fi needs in time, which we think Murata is capable of. 
</div>We go through the details below.

In 'Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment?', we looked at Wi-Fi 6, comparing it with 5G. We noted that there is no real difference between the Wi-Fi 6 and 5G technologies and that Wi-Fi 6 is relatively safe.  While most of the hype has been about 5G, we stated that Wi-Fi 6 appears to be much closer to being realised, and that device manufacturers have been taking Wi-Fi 6 more seriously, and thus it could be a threat to 5G. This insight takes a look at how 5G could be a disappointment, and how this might affect Murata Manufacturing (6981 JP), whose communication segment's recovery was built upon 5G. In addition, Murata's MLCC technology has been continuously updated to suit 5G and smartphone needs.
We spoke to the company about the implication of 5G vs. Wi-Fi 6 penetration. According to Murata, their devices would be used in a lot of areas regardless of whether it is Wi-Fi 6 or 5G. However, they expect 5G to be a more significant driver than Wi-Fi 6.
Given Apple's launch of 5G probably by the end of this year and increasing 5G launch in China (Luxshare’s Risky Chance to Be Apple’s Second Foxconn), Murata may be able to see some growth from 5G over FY03/22. That said, sustaining long-term growth might depend on Murata's ability to exploit its MLCC technology for Wi-Fi needs in time, which we think Murata is capable of. 
We go through the details below.

5G Delay and Disappointment - Will Murata Suffer?

Murata Manufacturing   / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> released better than expected 3Q numbers on Thursday with revenue and OP beating both consensus and the company’s own guidance. Sales and OP outpaced consensus estimates by +1% and +7.3% respectively and the company’s guidance by nearly 2% and 10% respectively. Our estimates turned out quite conservative for Murata.Our key points are:<ul>
<li>It seems that COVID 19 had no immediate impact on Murata and thus 4Q was a typical weak quarter for Murata.</li>
<li>Our expectations and reasoning for FY03/21E are still valid- A significant COVID-impact is likely at 1H.</li>
<li>1H FY03/21E guidance is in line with ours.</li>
<li>Murata’s stock price responded positively to the better than expected results, but declined the following day. Regardless, Murata trades at its usual premium, and is at its 96th percentile on PE.</li>
<li>We believe that further upside is limited though profit-taking is not apparent yet.</li>
</ul>We go through the details below.

Murata Manufacturing (6981 JP) released better than expected 3Q numbers on Thursday with revenue and OP beating both consensus and the company’s own guidance. Sales and OP outpaced consensus estimates by +1% and +7.3% respectively and the company’s guidance by nearly 2% and 10% respectively. Our estimates turned out quite conservative for Murata.Our key points are:
It seems that COVID 19 had no immediate impact on Murata and thus 4Q was a typical weak quarter for Murata.
Our expectations and reasoning for FY03/21E are still valid- A significant COVID-impact is likely at 1H.
1H FY03/21E guidance is in line with ours.
Murata’s stock price responded positively to the better than expected results, but declined the following day. Regardless, Murata trades at its usual premium, and is at its 96th percentile on PE.
We believe that further upside is limited though profit-taking is not apparent yet.
We go through the details below.

Murata’s Better Than Expected FY03/20- COVID19 Impacts Are for FY03/21E

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/679/original/2020-05-01_05-31-11.png?1588278692" class="editor-image img-responsive" data-smartkarma-image-id="130679"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div>COMFORT BLANKET - As the politically-motivated Central Banks smother equity markets with the comfort blanket of the 'mother of all QEs', the reality of what The Economist describes as the '90% Economy' unfolds in the daily earnings and forecasts revisions announced by Japanese companies. In some cases, such as <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec (6594 JP)</a>, the picture is distorted by the strength in overseas demand in February as Chinese competition was put on hold and the rest of North Asia took up the resulting 'slack'. As we have noted before, the first and second-order impacts of COVID-19 will not be revealed until the August and November results, when we expect both of our Scores to be closer to their 2009 troughs. Meanwhile, the US Federal Reserves trillion-dollar rescue package will keep upward pressure on the yen as the Bank of Japan struggles to keep up.  COUNTERMEASURES - Japan's revised supplementary budget was approved yesterday, allowing for interest-free loans to businesses, tax deferrals and cash handouts to all households. The COVID crisis has also prompted Japan to engage in a bout of 'magical thinking' allowing for the rolling back or revision of many long-cherished traditions:-<ul>
<li>The start of the academic year will now probably be pushed back to September this year - discussions have started to make this shift permanent, finally bringing Japan into line with the rest of the world.</li>
<li>Hanko personal and corporate seals that are required to certify documents may now also be going the way of the dodo as the Keidanren business organisation has acknowledged that they 'do not meet the digital age'.</li>
</ul><hr><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/680/original/File%202020-05-01%203%2039%2027.jpeg?1588280828" class="editor-image img-responsive" data-smartkarma-image-id="130680"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/681/original/File%202020-05-01%203%2027%2003.jpeg?1588280873" class="editor-image img-responsive" data-smartkarma-image-id="130681"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/683/original/File%202020-05-01%203%2040%2007.jpeg?1588281553" class="editor-image img-responsive" data-smartkarma-image-id="130683"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/682/original/File%202020-05-01%203%2031%2028.jpeg?1588280903" class="editor-image img-responsive" data-smartkarma-image-id="130682"></figure><div class="content-caption">Source • ourworldindata.org</div>MAYDAY - Although Japan's daily case count has fallen to around 200, the medical experts advising the Japanese government are suggesting that this level will require an extension to the states of emergency (SOEs) currently operating in all prefectures beyond May 6th. Hospitals are still working at above-normal capacity, and patients are still being turned away from many hospitals. Alarmingly Japan's current eight death-doubling-days count is amongst the worst in the world. Also, excess mortality data for Tokyo suggests that, in March, there were over 60 excess deaths a week not attributed to COVID-19. The expectation is that the SOEs will be extended to Sunday, May 31st and that schools will not reopen until September. In most European countries extensive testing is one of the requisites for easing lockdown restrictions, and the UK is now ramping up testing capacity in anticipation. Japan's woeful record on testing will become a factor by the end of May. Japan's case fatality rate of 3% suggests that the number of cases could be ten times the official number.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/684/original/2020-05-01_06-41-23.png?1588282906" class="editor-image img-responsive" data-smartkarma-image-id="130684"></figure><div class="content-caption">Source • Japan Analytics</div>30TH APRIL - In the DETAIL below, we shall review Thursday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 132 results was 51:10:71; and for the 83 revisions or initial forecasts, the split was 30:7:43. Of the 98 companies announcing annual results, only 43 made forecasts for the current year. The ratio of dividend cuts to increases was 5:10 with <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange Group (8697 JP)</a> being the most prominent in the former camp.

Source • Japan AnalyticsCOMFORT BLANKET - As the politically-motivated Central Banks smother equity markets with the comfort blanket of the 'mother of all QEs', the reality of what The Economist describes as the '90% Economy' unfolds in the daily earnings and forecasts revisions announced by Japanese companies. In some cases, such as Nidec (6594 JP), the picture is distorted by the strength in overseas demand in February as Chinese competition was put on hold and the rest of North Asia took up the resulting 'slack'. As we have noted before, the first and second-order impacts of COVID-19 will not be revealed until the August and November results, when we expect both of our Scores to be closer to their 2009 troughs. Meanwhile, the US Federal Reserves trillion-dollar rescue package will keep upward pressure on the yen as the Bank of Japan struggles to keep up.  COUNTERMEASURES - Japan's revised supplementary budget was approved yesterday, allowing for interest-free loans to businesses, tax deferrals and cash handouts to all households. The COVID crisis has also prompted Japan to engage in a bout of 'magical thinking' allowing for the rolling back or revision of many long-cherished traditions:-
The start of the academic year will now probably be pushed back to September this year - discussions have started to make this shift permanent, finally bringing Japan into line with the rest of the world.
Hanko personal and corporate seals that are required to certify documents may now also be going the way of the dodo as the Keidanren business organisation has acknowledged that they 'do not meet the digital age'.
Source • ourworldindata.orgMAYDAY - Although Japan's daily case count has fallen to around 200, the medical experts advising the Japanese government are suggesting that this level will require an extension to the states of emergency (SOEs) currently operating in all prefectures beyond May 6th. Hospitals are still working at above-normal capacity, and patients are still being turned away from many hospitals. Alarmingly Japan's current eight death-doubling-days count is amongst the worst in the world. Also, excess mortality data for Tokyo suggests that, in March, there were over 60 excess deaths a week not attributed to COVID-19. The expectation is that the SOEs will be extended to Sunday, May 31st and that schools will not reopen until September. In most European countries extensive testing is one of the requisites for easing lockdown restrictions, and the UK is now ramping up testing capacity in anticipation. Japan's woeful record on testing will become a factor by the end of May. Japan's case fatality rate of 3% suggests that the number of cases could be ten times the official number.Source • Japan Analytics30TH APRIL - In the DETAIL below, we shall review Thursday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 132 results was 51:10:71; and for the 83 revisions or initial forecasts, the split was 30:7:43. Of the 98 companies announcing annual results, only 43 made forecasts for the current year. The ratio of dividend cuts to increases was 5:10 with Japan Exchange Group (8697 JP) being the most prominent in the former camp.

🇯🇵 JAPAN • Results & Revisions Update 30th April - D1Life, Toto, JR-W, CTC, Murata, Nidec, Mercari

<a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance, especially on the revenue front.Murata’s peers: <a href="https://www.smartkarma.com/entities/kyocera-corp" target="_blank" data-smartkarma-citation="entities:753:1" rel="noopener">Kyocera Corp (6971 JP)</a> released underwhelming results on Monday, and <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> revised its FY03/20E guidance downwards at the end of March due to COVID concerns (to release FY03/20 results on the 15th of May). However, Murata did not announce revisions to its earnings guidance and appears quite optimistic about meeting its target despite COVID concerns during 4Q.While we have been bullish on the company’s long-term growth prospects, short term risks are as apparent for Murata as they are for its peers. We expect an underwhelming 4Q for Murata as well.Although results in prior quarters could cushion a downturn this FY, a more serious impact is likely to be seen through 1H of FY03/21E, if 5G demand does not come through.The consensus earnings estimates have been brought down for Murata, but are still above the company’s guidance. We are quite skeptical about the company’s ability to surpass (or even achieve) its guidance for reasons discussed below.

Murata Manufacturing (6981 JP) is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance, especially on the revenue front.Murata’s peers: Kyocera Corp (6971 JP) released underwhelming results on Monday, and TDK Corp (6762 JP) revised its FY03/20E guidance downwards at the end of March due to COVID concerns (to release FY03/20 results on the 15th of May). However, Murata did not announce revisions to its earnings guidance and appears quite optimistic about meeting its target despite COVID concerns during 4Q.While we have been bullish on the company’s long-term growth prospects, short term risks are as apparent for Murata as they are for its peers. We expect an underwhelming 4Q for Murata as well.Although results in prior quarters could cushion a downturn this FY, a more serious impact is likely to be seen through 1H of FY03/21E, if 5G demand does not come through.The consensus earnings estimates have been brought down for Murata, but are still above the company’s guidance. We are quite skeptical about the company’s ability to surpass (or even achieve) its guidance for reasons discussed below.

Murata FY03/20 Earnings Preview: Expect A Miss

Japan

MURATA MANUFACTURING COMPANY, LTD. manufactures and sells ceramic applied electronic components.  The Company's products include filters, capacitors, thermistors, resistors, noise suppression components, coils, piezoelectric sound components, power supplies, sensors, hybrid integrated circuit (IC), and microwave components.

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Murata Manufacturing (6981 JP)

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through...

Campbell Gunn

5G Delay and Disappointment - Will Murata Suffer?

In 'Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment?', we looked at Wi-Fi 6, comparing it with 5G. We noted that there is no...

Aqila Ali

Murata’s Better Than Expected FY03/20- COVID19 Impacts Are for FY03/21E

Murata Manufacturing (6981 JP) released better than expected 3Q numbers on Thursday with revenue and OP beating both consensus and the company’s...

Aqila Ali

🇯🇵 JAPAN • Results & Revisions Update 30th April - D1Life, Toto, JR-W, CTC, Murata, Nidec, Mercari

COMFORT BLANKET - As the politically-motivated Central Banks smother equity markets with the comfort blanket of the 'mother of all QEs', the...

Campbell Gunn

Murata FY03/20 Earnings Preview: Expect A Miss

Murata Manufacturing (6981 JP) is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance,...

Aqila Ali

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